The Obama administration has been right to focus much of its energy on re-capitalizing the nation's banks. Renewed growth depends largely on an end to the credit crisis.
But for all the focus on Wall Street, the way out of the current recession may depend more on Main Street. Analysis of the nation's economic history reveals that the housing market's resurgence has led a wider turnaround in five of the last seven recessions.
So a renewed focus on pumping up home-buyer demand may be worth additional attention from Washington.
Unfortunately, most news out of the residential real estate industry remains grim. Sales of existing homes fell more than 7 percent in March from last year. And the U.S. median sales price slid over 12 percent.
But there is a small beacon of hope. The Commerce Department reported recently that new-home sales surged 4.7 percent from January to February. And while much of that was driven by falling prices, another factor played a big role: a sudden burst of interest from first-time buyers.
Nearly one-half of all sales in February were to individuals and families without title to an existing home. No doubt, the absence of a mortgage left many first-time buyers with fewer barriers to entry.
But more than that, the explosion in demand was likely driven by the impetus to take advantage of the $8,000 first-time home-buyer credit included in President Barack Obama's economic stimulus package.
The cause of the credit's success is no mystery. For most families looking to purchase a home, $8,000 can go long way toward covering a down payment or completing their initial renovations. But the Obama administration included a further impetus to speed the resurgence in demand: plans to dissolve the credit at the end of the year.
In public life, it is a rare pleasure to point to a nearly unmitigated policy triumph. But, the first-time homebuyer credit may qualify. Given its singular success driving up demand in the housing market, it is time for Washington to consider how to broaden its reach.
In that vein, we recommend that Congress quickly send President Obama a bill expanding the program beyond first-time buyers, encouraging existing homeowners, as well as those dipping their toes into homeownership for the first time, to invest in a new primary residence.
To make the most of an expanded program, we urge two other changes. First, any extended credit should also be time-limited: Lest this sort of subsidy be viewed as some sort of entitlement, it should expire at the end of the year. That way, prospective buyers will be tempted to jump in now, when the economy most needs the boost.
Second, buyers should not have to wait until they receive their return next year to be reimbursed.
The federal government should make the value of the credit available to them the day they close on their new home, ensuring that a small gap in a family's cash flow does not serve as a barrier to buying a home.
None of us can doubt that getting banks lending is a worthy goal as the president leads us out of recession. But even as other economic catastrophes - bankruptcies, bonuses, and bailouts among them - dominate the headlines, we ought not lose sight of the fact that the housing market has so frequently led the rest of the economy out of a downturn.
Getting everyday homeowners buying again could lighten the load on the rest of the economy. And that would leave Washington more room to focus its attention on more drastic, if not pressing, challenges elsewhere.
Paul Weinstein Jr., a professor at the Johns Hopkins University, and Marc Dunkelman ( mdunkelman@dlc.org) are senior fellows at the Democratic Leadership Council.
